Forex Bitcoin

It isn't surprising that with the introduction of cryptocurrencies into the world that someday Forex brokers would allow them to be traded against other currencies such as the euro or pound.

Forex brokers offer different options for trading cryptocurrencies like Bitcoin, but it seems that the two main ways are by using a crypto trading account or a CFD trading account.

Crypto Trading Account Option

Some Forex brokers will allow you to open a crypto trading account that offers trading against the US dollar, euro or ruble. They harness the use of crypto currency exchanges, which provide liquidity. When you place a trade, you are trading against other participants in the market through the use of an ECN aggregator.

Buy and sell orders from all of the participants are processed by the aggregator and listed for trading. This basically simulates what you would expect from standard Forex trading.

Standard Forex Trading

It's best to start with an example of a standard Forex trade. Let's say that you are speculating on the currency pair (GBP/USD) that is currently trading at the rate of $1 = £0.5.

If you speculate $500, you'll receive £250. If the rate drops to 0.40 and you decide to close out the position, you will receive a 25 percent profit as 250/0.40 converts to $625, which is $125 over your original $500 speculation.

With a crypto trading account, you have the ability to make the same type of trade. You just use BTC for Bitcoin, depending on the currency pair.

CFD Trading Accounts

Contracts for Difference (CFDs) can also be used to trade Bitcoin. These trade the same way as the Forex markets, but you do not actually hold the underlying asset. Instead, you hold a CFD that mirrors the movement made by a currency.

Leverage varies from broker to broker. Some may offer 1:10, while another may offer 20:1. When volatility increases, Forex brokers will reduce these levels.

Advantages and Disadvantages

Using a Forex broker to trade Bitcoin has its advantages. There may be lower transaction costs as Bitcoin does not require assistance from banks and you don't have to worry about a random change in value since no central banks control the price of Bitcoin.

On the negative side, exchange rates do vary from broker to broker. It is your responsibility as a to trader understand how your Forex broker converts Bitcoin in your account.

Bitcoin is also less secure and could get stolen by a hacker. Check to see if your broker has insurance to protect against this is they hold Bitcoin in a digital wallet.

Also, pay attention to spreads that are offered as this will make a difference over the long-term, and finally, like other currencies, volatility can change fast -- understand what is at risk before making a trade.